INSIDE MEDIUM'S MELTDOWN: How an idealistic Silicon Valley founder raised $134 million to change journalism, then crashed into reality

Four days into 2017, Medium's employees came to work and were
told that one-third of them — 50 people — were being let go.

They were shocked. Their adored boss, billionaire CEO Ev
Williams, best known as the cofounder of Twitter, seemed to care
so deeply for each of them.

But he told the world about the
layoff in a blog post even before all the people who lost
their jobs were informed, a former employee tells Business
Insider.

Some of them found out through industry buzz that they had lost
their jobs, one person told us.

"It comes down to how dysfunctional the place was," one former
employee told Business Insider. This person said that before they
were let go, Medium was a "dream job."

Medium, a blogging and publishing site, gained instant fame when
it was launched in 2012 because of its well-known founder.
Williams said its mission was to fix what he viewed as the broken
world of journalism and create a new model.

But this latest change in its business plan — the company's
second — burnt some people so badly that industry insiders have
growing doubts about Williams' business judgment and are starting
to say the company is his vanity project.

In his post announcing the layoffs, Williams said the business
model Medium had been pursuing, advertisement-driven media, was
to blame for "misinformation," and that Medium would no longer
sell ads or help the publishers it hosted on its site with ad
revenue, and therefore it no longer needed the people it had
hired to work in those areas.

He was in search of a new business model.

As with the lack of communication with employees, some
advertisers weren't told in advance about the change of plans
either, and they were upset.

I did not think he would just pull the plug on publishing and
start f---ing people.

And the move infuriated some of Medium's publishers, who were not
warned and had bet their livelihoods on Medium and the business
model Williams was ditching. This model involved Medium cutting
them a check every month — a guaranteed minimum payment — and
helping them sell ads. That was over.

These people were now on their own to move to a new publishing
platform if they so chose. For publications not backed by venture
investments or rich owners who could afford to lose revenue, this
meant a bleak future.

"I like Ev. He's persnickety," one publisher told Business
Insider. "His ideas are interesting, and he does surprise me with
his thinking. He likes people who make things, including writers.
I did not think he would just pull the plug on publishing and
start f---ing people. But instead he's like, 'Your contract is up
in a while, and good luck. And I'm going to fire a bunch of
people.'"

Business Insider interviewed six people from all aspects of
Medium's business, including former employees and customers. We
sent Medium an exhaustive list with the information in this
story. The company declined to comment, did not respond to
multiple follow-up emails, and declined to make Williams
available for an interview.

The people we talked to told us:

The culture at Medium is wonderfully warm and fuzzy but also
sluggish, with terrible communication.

Williams is charismatic, imaginative, and brilliant in some
ways, particularly around products, but he's impetuous and
clueless in others.

No one is declaring Medium dead, but people in the Valley are
calling it a "s---show" and a "vanity startup," a favorite label
for a disorganized startup run by a rich and famous founder.

'Utter crap'

Medium was launched as a way for anyone to publish medium-length
articles on the internet. Williams has been at this mission for
decades. In 1999, before founding Twitter, he created a site
called Blogger.

Although Blogger struggled financially after the internet bubble
burst, it was groundbreaking for its day, and Williams sold it to
Google in 2003 for an undisclosed amount (some say $20 million).

Medium

With Medium, Williams was on a mission to clean up the mess that
blogging had become — and the misinformation and drivel it
attracted. He hoped to cure professional journalism of these
ills, too.

"The state of tech blogs is atrocious. It's utter crap," he
told Bloomberg's Brad Stone in 2013. "They create a culture
that is superficial and fetishizing and rewarding the wrong
things and reinforcing values that are self-destructive and
unsustainable." And he said he was "pessimistic about the state
of media, and that's why I want to work on this problem."

His idea back then was an algorithm that recommended high-quality
stories not based on clicks, but on how much time people spent
reading them. He didn't know in 2013 how Medium would make money,
as is common for early-stage startups, but he knew he didn't want
it to be through advertising, which he viewed as one of the root
causes of the mess.

Big vision, small promises

But after experimenting with business models, Medium launched an
ad sales beta program in April to sell limited types of ads, such
as a sponsorship of a series of articles. (For example, Marriott sponsored a series of travel
articles.)

The startup had also been wooing publishers to move to Medium —
to join the program and help increase Medium's overall
readership.

At an
Ad Age conference in April, Williams said: "The entire point
of this phase of monetization for Medium is to pay publishers.
That's what we see as our job."

More than two dozen publishers bought into the pitch and moved to
Medium, including Bill Simmons' The Ringer, Arianna Huffington's
Thrive Global, ThinkProgress, Amy Poehler's Smart Girls, and The
Awl Network.

"To be fair, they didn't really make promises. They framed it as
an experiment," one publisher said of Medium. "We were like,
'This is a gamble and a weird lackey situation. It might go
badly, we know that going in, and that's fine.' The one thing we
feared was that it would go so badly [and that it might] take our
business down with it.

"But we went with them because they insisted, 'We are building a
business, we do want to work with independent journalism, and we
have enough time and runway to do it,'" this person said.

There was reason to believe that. Medium has raised $134 million
valuing the company at $600 million, including raising a $5o
million round in April when the beta program was announced. This
includes investment from Williams himself, as well as Spark
Capital, Andreessen Horowitz, and GV, according to Pitchbook.

But despite Williams' public commitment, the company quickly ran
into trouble fulfilling the promise.

The company had a serious discussion at its October board meeting
about its future. Shortly after, the guy running its ad sales
team, Joe Purzycki, resigned.

And the all-hands meeting in December did not have the usual
"positive, rah-rah" tone, an employee said. Instead, Williams
told the company that things were not going as planned.

A billionaire's vanity project?

Ad sales are hard, but Medium had some early success. One of the
sponsored series had generated over six digits in revenue partly
because Medium could run these ads on multiple publishers' sites,
one person said. It gave the business side hope.

But that didn't last. When the year ended, revenue had fallen
short of projections, multiple people confirmed.

"We were making money with publishers. We also made money with
advertising," one person told Business Insider. "But the business
we could have built, if we were to go all-in, was not going to
justify Medium's valuation. That's a trap of venture funding. If
it turns out the market you find isn't big enough, you are in
trouble."

Medium

But there were other problems. The teams responsible for ad
sales, serving publishers, and creating ad features didn't
collaborate and barely communicated, sources said. They were in
their own bubbles, fighting for resources.

Williams was more concerned with other things.

"Ev is not that interested in revenue, to be honest," one former
employee said. "He's driven by wanting to create this democratic
space for people to have a voice, for the best content to rise on
top. The problem that does not excite him is 'How do I make
money?' And he has the luxury in doing that."

Another told us: "The work there felt meaningful, but yeah, we
were subject to a lot of quick changes of mind. That's fine in
the first two years when the platform is in beta and closed. But
once businesses and others start to use it and depend on it, it's
not so easy to do. And that's when some of the fracturing
started."

A publisher said that with Medium's surprise change of plans,
partners like them took big hits.

"Smaller publishers on Medium are in a bad way, and that's the
stuff I'm pissed about," this person said. "I get it, and it's a
startup, but it's also not, because it's run by a f---ing
billionaire. Ev's vanity project? It has become one now, for
sure."

Nonconfrontational to a fault

All the people Business Insider spoke to agreed: They admire and
like Williams. He's a hard worker — first one in the office, last
one to leave.

Employees said they loved their jobs. It wasn't just the perks
like free lunch and on-site meditation sessions; their CEO also
treated them as a doting parent would.

Kevin Moloney/Fortune Brainstorm
Tech

"He's an amazing person to work with," an employee said. "He
challenged me in ways I didn't think were possible."

Williams listens carefully to ideas, then helps an employee look
at a situation from a new perspective. He encourages
experimentation and doesn't penalize failure.

But Williams and his right-hand strategy man, Ed Lichty, were
also both described as "nonconfrontational" to a fault. They
didn't have the "hard conversations" or do ongoing course
corrections to build a sustainable business, multiple people
said.

Their messages to the staff were so consistently upbeat — and the
startup was so well funded — that employees felt complacent,
people told us. (Lichty, who has been with Medium for four of its
five years, is also leaving, multiple people said. Medium
declined to comment.)

Yet this was the second time they changed business models. Medium
had previously toyed with being a publication itself, hiring
writers and editors. Then it shuttered that effort. Employees
were asked to voluntarily resign or relocate to other jobs.

Even if Williams finally gets the business model right, at this
point he would have to rebuild trust and credibility in the media
world.

The Netflix of publishing

The business model Williams wants to pursue next is some form of
subscription, he has
told people in the Valley. The idea is to become some version
of the Netflix of publishing.

Ads
like this, on a sponsored post, have been
banished.Medium

But Williams is also fascinated by the idea of a reader-supported
business model known as patronization, one person told us.

Williams enjoys hosting dinners at his house with people in the
journalism world like Katie Couric and members of Medium's
publications, one person said. At one dinner, Tim Urban, the
author of the blog Wait But
Why, discussed his dislike of ads.

"There are no ads on the site cause ads are gross," Wait But
Why's support page
says.

Instead, Wait But Why is supported by patronization, meaning
posts are free but it asks readers to make a small monthly
recurring donation using a service called Patreon. Urban has
persuaded more than
4,000 people to donate a total of more than $12,000 a month.
That's enough to give him a paycheck, pay an employee, and cover
some business expenses. He's working on raising more money this
way, too.

"Ev was so entranced by this idea," one person told us. "That's
great for Tim, but it doesn't scale. Also, it's a hard business.
Ev doesn't like ads? Wait until he finds out what credit card
processing is really like."

And while big questions remain about how Williams would turn
Medium into a credible business — not just for himself, but for
its publishers and employees — his investors are still in his
corner, wanting him to try.

One of them, M.G.
Siegler, a journalist-turned-VC, says Williams has been
successful in the first important step: building an audience for
the site. "Two billion words written on Medium in the last year.
7.5 million posts during that time. 60 million monthly readers
now," Siegler
wrote.

"If the company can figure out a way to do what it's attempting
to do, it's potentially a new lease on life for some current
forms of content," Siegler
said. "But more importantly, it opens up avenues for brand
new types of content that might otherwise never have existed."